Canada dollar rises vs. majors on biggest CPI gain since 1991

Canada’s dollar rose versus a majority of its most traded peers after consumer prices rose at the fastest monthly pace in more than 20 years in February, raising speculation about an interest-rate increase.

The currency fluctuated against the U.S. dollar after gaining to the strongest level in a month as consumer prices rose 1.2% last month, the biggest gain since January 1991 when the country implemented a new sales tax, Statistics Canada said. The discount Canadian oil producers face to the U.S. benchmark narrowed yesterday to the least in almost five months. The so-called loonie fell earlier as concern over the bailout for Cyprus and a political deadlock in Italy undermined demand for higher-yielding assets.

The CPI number “does give it stronger tailwind to keep the Bank of Canada on track for an eventual rate increase,” said Joe Manimbo, a market analyst at Western Union Business Solutions, a unit of Western Union Co., said by phone from Washington. “The Canadian dollar has take more of its cues from the improving U.S. growth story, and that could have positive effects on Canada’s economy.”

The loonie was little changed at C$1.0164 per U.S. dollar in Toronto at 11:07 a.m. after touching C$1.0150, the strongest since Feb. 22. It earlier fell as much as 0.3%. One Canadian dollar buys 98.39 U.S. cents.

Canada’s benchmark 10-year government bonds jumped, lowering yields by five basis points, or 0.05 percentage point, to 1.77%. The 2.75% security maturing in June 2022 increased 43 cents to C$108.30, the highest since Jan. 1. The Bank of Canada will auction C$3.3 billion ($3.3 billion) of 10- year notes today at noon.

Crude Oil

Futures on crude oil fell 0.6% to $95.81 per barrel in New York after touching $96.45 yesterday, the highest point since Feb. 20. Prices have risen 2.8% during the past month.

The discount between the Canadian and American benchmark crude oil blends was at C$16.50 today after touching C$16.25 for a second day yesterday, the narrowest since Oct. 17. It’s down from a record C$42.50 on Dec. 14. Oil is Canada’s largest export and the U.S. is the nation’s biggest export destination.

“The oil picture has swung substantially in the Canadian dollar’s favor in the past month,” Adam Button, a currency analyst at forexlive.com in Montreal, said by phone. “Oil trades have been a tailwind for the loonie.”